In-Person Home Appraisals Won’t Be Required for Some Loans: Should You Get One Anyway?

Some Home Buyers, Refi Seekers Don't Need Appraisals: Should They Get Them Anyway?


With home prices zooming ever higher and mortgage rates ticking up, some people seeking mortgage loans or refinances could get a much-needed break. They may no longer be required to get formal property appraisals—a change that could save them hundreds of dollars and speed up the closing process.

A little-known change in requirements last year from mortgage giants Fannie Mae and Freddie Mac has made these waivers for traditional, in-person appraisals available. The government-sponsored enterprises have started to use proprietary analytics and property data to value homes. That’s instead of having professional appraisers come out to physically inspect the homes, look at recent sales data in the area, and perform their own analyses to come up with the valuation. (Certain borrowers requesting refinances had access to the waivers earlier.)

A traditional in-person appraisal costs an average of $500, according to Fannie. That cost is footed by the loan seeker, whether it’s a buyer getting a mortgage or a homeowner trying to refinance.

However, not everyone is eligible for these appraisal-free loans, which typically require a down payment of at least 20%, according to the Washington Post. Borrowers can’t request these faster-track valuations; Fannie and Freddie identify properties that they deem appropriate, favoring those that have had other appraisals in the past few years.

“If [Fannie and Freddie] have a good basic inventory of information about the house, its value, and what it sold for, you’re more apt to get a property inspection waiver,” says Don Frommeyer, a mortgage originator at Marine Bank in Indianapolis. But “the longer it hasn’t been appraised, the more apt you are not going to get a property inspection waiver.”

That means if a property hasn’t been appraised in the past decade, there’s a good chance it’s not eligible for a waiver.

Of Fannie’s roughly 1.2 million home mortgages, only about 5%, or 60,000, were no-appraisal mortgages in 2017, according to data given to the Post. Freddie hadn’t tallied its number of no-appraisal mortgages, but estimates they will eventually account for between 10% to 15% of its new loans.

(Lenders typically sell the mortgages they make to the likes of Fannie and Freddie, so they’re not bogging down their balance sheets. So when these government-sponsored enterprises change the requirements for the loans they acquire, it ripples across the mortgage industry.)

But just because folks are offered the option of skipping a traditional appraisal, it doesn’t mean they can’t get one. The question is whether they should opt to save a few bucks, or bite the bullet and hire a flesh-and-blood appraiser anyway.

Should home buyers get a no-appraisal mortgage?

“It can save buyers money, but it can potentially lead to them overpaying if they don’t have that second opinion in the appraisal,” says Chief Economist Danielle Hale of®. That’s because if the appraisal comes in lower than the price of a home, buyers could have some room to negotiate. “But many markets are so hot right now that buyers may not be able to negotiate the price anyway even if an appraisal came back too low.”

In March, 42% of buyers had contingencies in their purchase contracts allowing them to back out if the appraisal came back too low, according to the National Association of Realtors®.

It’s less risky for borrowers forgoing formal appraisal when they refinance a home loan.

“If you’re refinancing solely to get a lower rate and nothing else has really changed about the property itself, it just makes sense,” Hale says. “It can save money.”

Loosening the requirements around appraisals could also help offset the looming appraiser shortage. The number of appraisers nationally has been declining about 1% to 2% annually for the past few years, according to the Appraisal Institute, an industry trade group based in Chicago. And with nearly two-thirds of current appraisers at least 51 years old as of last year, home appraisals could become more expensive and take longer to complete in coming years.

What are the downsides to no-appraisal loans?

Not everyone is a fan of doing away with in-person appraisals.

Sacramento-based appraiser Ryan Lundquist told the Post that Fannie and Freddie’s computer programs “cannot smell 20 cats living at the property.” They also can’t identify problems with the home that can lower the value of a property.

“Appraisals are the gold standard for real estate evaluation,” says Ken Chitester, spokesman for the Appraisal Institute. “As a homeowner, it means you could be selling for less than what you should be getting. As a home buyer, you could be overpaying.”

The post In-Person Home Appraisals Won’t Be Required for Some Loans: Should You Get One Anyway? appeared first on Real Estate News & Insights |®.

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